Oregon Economic and Revenue Forecast cause for cautious relief

The Oregon Economic and Revenue Report showed the state's economy chugging along, resilient but not radiant.

State Chief Economist Carl Riccadonna told legislators on Wednesday, Aug. 26, that conflicting signals on jobs, wages, taxes and inflation promised more of the same mixed economic outlook.

The report presented to the Legislature showed state general fund and lottery resources projections increased $59 million for 2025-27 from the previous revenue report, essentially flat. That bumped the state's expected ending balance to $400 million, nearly the $472 million close-of-session budget before the federal HR 1 mauled the state's budget in 2025.

The "Big Beautiful Bill" put a scare in Oregon, cutting federal support and drastically reducing expected state revenue. The Legislature restored some of that revenue through state tax changes in Senate Bill 1507, which partially disconnected Oregon from the federal tax code. The most recent report shows better-than-expected state tax revenue will be able to make up a little more of the lost federal funding.

Senior Economist Michael Kennedy, though, told legislators they have never seen anything like HR 1 for their projections, leaving significant uncertainty about the tax ramifications still to play out.

With the report showing a lessening chance of recession, state and school leaders can turn their attention to the 2027-29 forecast. The latest report increased the net general fund and lottery revenue estimate by $568.7 million from the previous estimate.

Still state budget writers will struggle with reduced federal support, especially around Medicaid where the state faces a $421 million hole, and figuring how much state spending can step in. Education advocates' appeals for adequate spending for pressing public education needs will be facing a tight budget.

School leaders recently learned that early estimates for maintaining a current service level in schools would put the State School Fund at $12.6 billion, a 10.5% increase. Wednesday's forecast predicted a 11.8% increase for net general fund and lottery resources from the 2025-27 close of session budget.

The quarterly economic report also had a down note particularly for school leaders. The forecast showed statistically small drops in the corporate activity tax that supports the Student Success Act. CAT collections were revised down $94.6 million for 2025-27 and $25.7 million for 2027-29 from the previous report.

The next revenue report on Nov. 18 will be the last one before the governor's budget is released. The governor's budget sets spending priorities but is not binding. The Legislature will then receive two reports, one in February and one in May, that will provide the final numbers for the 2027-29 budget.

- Jake Arnold, OSBA
[email protected]